The Scoop on Restaurant Loss Prevention and Cash Management

Friendly's Restaurants' Ernie Patnode approaches cash management with a lot of common sense, a little technology and, yes, politeness

Ernie Patnode likes to say that cash handling is a lot like passing sand from hand to hand. The more hands involved in the process, the less sand you’ll have left at the end.

Patnode is corporate security manager for Friendly’s Restaurants, an ice cream and burger joint familiar to any New Englander. And part of Patnode’s approach to loss prevention in his company’s 510 restaurants (some owned, some franchised) is to minimize the number of hands passing the sand. “It’s basically about honesty,” says Patnode. “There’s no magic about it.” But Patnode’s philosophy is broader than that, and parts of it are surprising. Loss prevention programs are often tagged as “gotcha” operations, a policing function that doesn’t contribute to the business unless it’s stopping someone from skimming the till. But Patnode, who retired from the Massachusetts State Police 18 years ago and who has been with Friendly’s ever since, doesn’t adhere to that philosophy. Underlying his loss prevention program, which he believes can enable the business, is significant respect for human nature, even empathy for someone trying to buck the system. He approaches loss prevention with a healthy dose of niceness, saying that all those tools used to catch bad guys in the act of stealing ought to be used as much for rewarding good guys with praise.

CSO spoke with Patnode about his approach to effective cash handling and loss prevention.

CSO: Which comes first in your loss prevention program, technology or policy?

Ernie Patnode: In many ways, your policy and sticking to it, that’s more important than technology when it comes to loss prevention. If you have a good policy and are strict about enforcing it, that’s key. For example, you can install various types of cards and all that, but you know what? A waiter leaves his access card unattended, something still happens. It’s a policy violation that got you. Electronics are trackers. It’s the same as card access to headquarters’ offices. It tells you who entered, what time, how long the safe door was open. It helps tracking supervisory staff. But it isn’t like you have something that reads every single action. The strength of most loss prevention is good solid supervision. Look, systems are great, don’t get me wrong, but loss prevention comes down to having top-notch supervisory staff.

Still, technology must be important. What do you focus on?

I’m a firm believer in CCTV and alarm systems. Our back doors are locked with alarms when possible. Pass doors, where trucks drive right up and deliver goods right into the freezer, we put monitors on those to record entry and trigger CCTV, and also alarm if someone walks out without having already walked in. The CCTV, we’ve done studies on the new stuff. Things like being able to bring it up on my office PC. It’s a substantial financial investment we weren’t ready to make. So what we did do is invest in cameras that allow for the upgrade if we decide we need it. I want to research its value more.

Vendors always say [a product] can do X, Y and Z. But to me it’s just as important to use these tools to prove someone’s innocence as it is to prove someone’s guilt. People look at the technology as a means to deterrence and penalty. It’s not bad bad bad all the time. I look at it as an opportunity to reward people for doing the right thing. Rewarding someone makes them a better employee who is less likely to steal.

Using CCTV for praise. That’s a new one.

Praise is important. Thanks. Acknowledgment. It makes you become part of the institution, part of the team when you’re praised. And guess what? Now I’ve got an extra pair of eyes and ears in the restaurant. After this [interview], I’m going to stop at a couple of restaurants. Drop in. See what’s going on. Tell those guys some of the good things I see.

It almost sounds like intelligence gathering, in a benign sort of way.

Who knows what’s really going on better than the supervisors in the field? Not a camera or a computer.

What’s something people misunderstand about loss prevention?

In the restaurant industry, one of the things about loss prevention is that it goes way beyond money. It’s not always cash. It’s food. Inventory. Nowadays we run reports on what was shipped to each restaurant and what was used, every day. We should be able to match inventory to sales. If inventory comes out too low, it’s a loss. But what if it comes out too high? Too much inventory is just as much a problem. Some managers get bonuses for efficiency, and they could be padding the inventory to receive their bonus. That’s larceny.

Or, if an employee eats and fails to pay for the meal, that’s a loss. Even if they say it was a mistake, it still costs the restaurant money. We can’t eat mistakes, so we let them know it has to be reconciled. Ring it in when you eat. Instill in the cooks that if you prepare a meal and there’s no receipt for it, you are partly responsible for the loss.

But, come on, it’s just a burger for a hardworking teenager.

Say you sell a product—a meal—for $10. The employee who’s eating that free or skimming the cash off someone else’s meal sees that as $10 the company is getting. What they don’t factor, because they don’t know, is that it costs us $6 for the ingredients, $1.50 for the wages to serve the meal, another $1.75 for insurance, licenses, lighting, marketing, whatever. Of that $10 you may get 75 cents down to the bottom line. They steal five of those dollars, you’re not $5 ahead, you’re $4.25 in the hole, you see? If all your employees ate a hamburger and had a soda every day and never paid, that’s a huge cash loss.

This starts to get into something that’s important, the mind-set of the person stealing, because they’re probably thinking what I just said, “This big company isn’t going to miss one burger.”

The rationalization process is so deep. Maybe you can’t believe the things people will do or say to justify their actions. Not many people, when confronted, are going to step up and say, “I did it and I was wrong.” But that’s life. You’ve got to understand that it makes sense to them, even if it makes no sense to you. You have to operate on the premise that there’s always a need, and if we supply the opportunity, we’re going to get beat.

There’s something empathetic about the way you say that, as if you understand, or at least accept, that this impulse to rationalize theft is part of life.

It comes down to people. Not everyone is dishonest, but for some portion of the population, it’s part of survival. This industry, there’s a lot of work that goes into it. A lot of luck too. You don’t always have control over hires. I think our people understand that. They do a good job with it. You know there are no guarantees, but as long as you’re working together under sound policies, and you minimize opportunities, you hope that your losses are minimal.

What we’re really talking about is the classic fraud triangle. You’ve accepted the rationalization some people will have. You know they have motivation. All that’s left is the opportunity.

And opportunity is provided when you fall down on your procedures.

Take cash handling. It’s more of the same strict policy focus: You count cash in a locked room. The count is verified independently. Cash is put in tamperproof bags. When delivering a cash deposit, the bags are concealed and those deposits are always, always done during daylight hours. The concept is simple: The fewer people who have access, opportunity, the less problem you have. And people won’t think to steal if they never see anything to be stolen. They never see the opportunity.

None of that is particularly high-tech.

Some of our lowest-tech policies are most effective. When you bleed the register for instance, you put the money in an envelope and seal it. Write your name across the back so that someone trying to get at that money has to break the seal and then replace the envelope with a new one and try to forge your name. That’s not easy to do, so now they’ll think twice about trying.

What other low-tech loss prevention techniques are you fond of?

We require employees to break down boxes, and this alone has helped minimize loss from freezers and anterooms (where ice cream and produce are stored). No boxes to put stuff in, no theft. But one of my favorites—if you ever go into the back of a restaurant you’ll see a garbage bucket with a big magnetic bar running across the top. That one magnetic bar creates huge savings; it catches silverware that would otherwise [accidentally] be thrown away. I love it because it saves tons of money on accidental loss while allowing the servers to spend the time serving the customers [instead of] sorting silverware.

Armed robbery is a big concern.

Armed robbery is the most dangerous thing we face in this industry. What I tell employees is: You offer no resistance. The longer [the robber] is in there, the more opportunity there is for something to go terribly wrong. Someone doing an armed robbery is by definition not thinking straight. Give them the money and get them out. Then, watch as they leave, trying to get as much detail as possible. Where did their head reach at the door, what were they wearing? Once they’re gone, lock the door. Then, don’t huddle up to discuss. When you huddle up and talk about what just happened, the strong personalities tend to dominate the conversation regardless of the accuracy of their information. Let the investigators come in and interview each person. They will get a much more detailed portrait of the event that way.

Does security have a say in restaurant design?

From a security standpoint, we have one design rule: Nothing’s hidden. Everything is open, visible and well-lit. No curtains. A lot of glass. When the sun goes down, I tell them, the drapes go up. Because if you can’t see out, the police can’t see in. People, potential customers, also like to see in, so no ads on the windows. I tell supervisors to show activity. A bad guy is looking for a place where there’s one person sitting there reading a book. The register stays up front and open, the employee using it is in full view of everyone, which helps prevent insider threats from becoming a problem. The take-out area looks right through the restaurant. What we’re doing is eliminating the opportunity to get out of sight.

Does the marketing group ever raise a fuss about the limitations—not being able to put ads in the windows, say?

Marketing understands the limitations on advertising. They respect our concerns.

Do you see anything happening in loss prevention today that concerns you?

I’ve been around a long time. I’ve seen a lot of people fail in security by taking the wrong approach, by thinking they know everything there is to know. The truth is, we all learn every day. A good investigator knows where to go for expertise. Today, it seems like everyone feels above that. More and more they think they don’t need others. Come on. If I don’t rely on others’ expertise, I’m nowhere.

Send feedback to Senior Editor Scott Berinato at sberinato@cxo.com

Copyright © 2007 IDG Communications, Inc.

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